Refining the Art of Giving

Injecting money into good causes has become a complex business

By

Andrew Rosenbaum

December 12, 2011

Readers may recall Mrs. Jellyby, the philanthropist that Charles Dickens portrayed in his novel Bleak House—a woman who squandered time and effort on fantastic charitable schemes supposedly taking place halfway across the globe while the world of her own family fell apart.

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Nothing could be further from this depiction than modern philanthropy, which has its own "philanthropy speak," seasoned managers, consultants, not to mention brand managers and a wealth of theoretical literature. Both theory and practice are expanding at a rapid rate, despite the difficult times. "We've seen no slowdown in our work through the recession," says Sarah Burton, interim chief executive at the Institute of Philanthropy in London. "On the contrary, one has the impression that more giving takes place in times of greater need."

The question is: Where do you start? Do you just write checks? Do you need your own philanthropic trust or foundation? Do you want to work in the U.K. or in Europe, or in developing nations abroad? Which kind of adviser do you choose? Can your bank help? And can you ensure efficient tax planning so that money you intended to help others doesn't wind up in the hands of the tax collectors?

"In fact, the first thing that we tell beginning philanthropists is to take a step back, and think about what their real objectives are," says Maya Prabhu, head of philanthropy at private bank Coutts & Co. in London. "People who have worked hard for their money, for example, expect to use it to make a maximum impact. Some want to help the communities they grew up in. Others want to use it to support communities abroad. We try to narrow their objectives, and to channel them to the right organizations or people who are active in the areas they choose." These may not be single choices; a well-heeled philanthropic trust can be active in a number of areas at a time.

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Bill Gates
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"It's important to choose your point and level of intervention. Some organizations seek out the root causes of problems through research, whilst others are on the frontline directly serving those affected. Support the approach that most interests you," Ms. Burton says. So one can follow Bill Gates's example and set up a large foundation dedicated to a single root cause of a problem, or one can be like George Soros, and try to reach businesses and workers in a specific geographic area—in his case, Eastern Europe.

But you need not have a philanthropic trust to do good. Indeed, for a family foundation or trust to make economic and fiscal sense, it should be funded at about £250,000 ($398,650) at least. But, for as little as £5,000 ($7,973), you can take over a section—it's a kind of specific area of charity, which will be administered under the name of your family, or whatever name you choose to give it—of the Charities Aid Foundation in the U.K., and dedicate that sum to the causes you wish to support within that organization.

As for form and location, there is a lot of choice. "A great deal depends on where you want your money to go," explains Amanda Berridge, a partner specializing in philanthropy with PricewaterhouseCoopers in London. "Under a European Court of Justice decision of January 2009, which has been implemented in the U.K. and some other European countries this year, tax laws which discriminate against donations to public-benefit organizations based in other EU member states are against the EC Treaty, as long as the recipient organizations based in other member states may be considered 'equivalent' to resident public benefit organizations."

You can, therefore, be based in, say, Italy or the U.K., and enjoy the same tax advantages for charitable donations made anywhere in the 27 member states that you would in your base country. For example, before the court decision, if you were tax-resident in the U.K., and you gave money to a charity registered in Italy, you couldn't treat the gift as tax-deductible. The decision means such a gift would now be taken off your tax bill. This means that you can now establish your foundation in any country in the EU—and can therefore choose the one that is most advantageous to you from a tax point of view—and give your money to charitable work in any other member state.

Or, as Ms. Berridge points out, you can simply establish a charitable foundation in the country in which you want to do the giving. "But not all EU countries have yet implemented this decision in their local law," she adds.

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George Soros
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It is possible, if you have a lot to invest, to set up your own foundation. An increasing number of banks will today co-fund a charitable trust for you, and help you to run it. Alternatively, you can work with established charities, though those outside the EU won't be accepted by European national tax authorities as legitimate for tax-deduction purposes, Ms. Berridge says.

Still another way to give money to charities in a country outside of the EU, and to keep the fiscal benefit, is to find a European charity in your own country that does work there, or an EU-based conduit charity that gives money to a local charity in your target country.

A highly funded philanthropic foundation can be a boon to a wealthy family. "Before trying to bring the children into business, some wealthy families start them off with work at the family foundation. This helps them develop business skills, and also to think about their own values and objectives," Ms. Burton of the Institute of Philanthropy explains. Often, wealthy families will take a specific amount of money, create a separate department at the family foundation, and then let the children run that one department. "This gets them started," says Ms. Burton, "but doesn't give them the run of the show until they've learned some management and financial skills."

The truth is, there are plenty of ways to give your money to causes you believe in. Follow your heart, and let your banker or tax lawyer do the rest.

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